What are the annual leave calcuations?

The Holidays Act requires employees to be paid annual leave based on the greater of Average Weekly Earnings ('AWE') and Ordinary Weekly Pay ('OWP'). 

Average Weekly Earnings (AWE)

AWE is 1/52 of the employee’s gross earnings for the 12 months, before the end of the last pay period before the annual holiday. So in simple terms, the average amount paid to an employee over the last 52 weeks.

Ordinary Weekly Pay (OWP)

The OWP calculation has two mutually exclusive calculation options. Either: 

• OWP1 - the amount of pay that an employee would receive under his/her employment agreement for an “ordinary working week” (including any regular overtime or regular bonuses and allowances); or

• OWP2 (used where OWP1 cannot be determined) - a four week averaging formula based on the employee’s Gross Earnings for the previous four weeks or previous pay period (whichever is the greater) excluding any bonuses, allowances and overtime that do not form a regular part of the employee’s pay, divided by four.

What should be included in gross earnings?

There are different considerations for each of the calculations when determining what should or shouldn’t be included in gross earnings. See our post on gross earnings for more information.

You can use the flow-chart provided by Employment NZ to determine which calculations best apply to your employees.